Two Steps Backward

2011-10-27 11:18:07

None of the official statements emanating from Moscow in recent weeks suggest any willingness on the Kremlin’s part to join the World Trade Organization. Russia, which started a marathon journey to join the trade body way back in 1993, is widely expected to reach the finish line in December. However, Presidential Aide Arkady Dvorkovich said on Tuesday that Russia is running out of breath because of Georgia.

Russia and Georgia fought a devastating, five-day war in August 2008 to take control of the breakaway province of South Ossetia. Shortly after, President Dmitry Medvedev recognized the South Ossetia’s independence, as well as that of another breakaway province, Abkhazia. In negotiation after negotiation over Russia's WTO ascension, the Georgians have demanded that there must be some kind of multilateral control over trade flows through those two territories. But Russia has stuck to its guns, saying Moscow will never meet such demands.

“We have not completed the talks with Georgia,” the Interfax news agency quoted Dvorkovich as saying on Tuesday. “The demands put forward by our neighbors do not concern the demands of the WTO, but concern something completely different, something we cannot and never will be able to meet.” Dvorkovich also warned of serious economic ramifications if Russia is unable to join the WTO. “It will be worse for everyone, us and our partners,” he said. “The barriers will remain high and could even increase because of the crisis.”

Russia remains the largest economy outside the 153-member trade body, which replaced the General Agreement on Tariffs and Trade (GATT) in 1995 to oversee the rules of international trade. Trade officials in both the United States and the European Union say Russia has met nearly all requirements after cracking down on pirating, agreeing to stricter rules against counterfeited pharmaceutical drugs and negotiating with Finland on tariffs for round-log timber exports (a particular sticking point), The New York Times reported.

However, Medvedev raised some eyebrows last week when he said that it would not be a disaster if Russia fails in its 18-year bid to join the organization. "If we are told that we are not fit for it for some reason, we can live without it. This is absolutely true and I am absolutely sincere," RIA Novosti quoted Medvedev as saying. Medvedev said joining the organization “is not only in Russia's interests” but also in the interests of foreign businesses and “free trade flows.”

Anders Aslund, a senior fellow at the Peterson Institute for International Economics and a longtime Russia-watcher, noted that despite such outbursts, Medvedev has been a forceful and unequivocal advocate of Russia's WTO accession. Ivan Tchakarov, Renaissance Capital chief economist for Russia and the CIS, agreed, but added that Russia's WTO has always been "one step forward and two steps backward in recent years."

But top Russian officials hardly show the same enthusiasm. Prime Minister Vladimir Putin has been known to be a WTO skeptic for years, despite his government’s negotiation for membership. In 2009, when Russia seemed close to joining, Putin abruptly broke off talks and said Russia would join only as part of a Customs Union with Belarus and Kazakhstan (Russia has since dropped that idea and is negotiating alone). In April, Putin interrupted Deputy Minister of Economy Andrei Klepach’s speech to say he would order Russian officials not to obey WTO rules. While Putin may have softened his stance, saying in a televised interview this month that Russia is looking to accede to the WTO by the end of this year, Russian Foreign Minister Sergei Lavrov told a radio station last week that there was a way for Russia to join the WTO without Georgia’s green light.

Such statements have prompted some analysts to suggest that Russia might not want to join the trade body after all. One reason Russia might be rethinking its WTO accession, experts say, is that the country is unlikely to reap significant economic benefits by joining, while long-term economic effect could trend toward negative. "Currently, I would expect only Russia’s metallurgy sector to benefit from WTO accession,” said Vladimir Tikhomirov, chief economist at Otkritie Capital. “Many countries impose additional fees on metallurgy exports that will be lifted after Russia becomes a WTO member."

On the other hand, WTO agreements do not regulate most of Russia’s export products such as oil, gas and ore, Tikhomirov said. “When the membership transition period is over, we’ll need to significantly reduce fees on imported consumer goods and cars, as foreign producers will flood the domestic market. I doubt Russian producers will be able to compete with them efficiently.”

Other experts have stressed that any country serious about meeting WTO requirements can become a member within three to four years. "When a country like Russia or China joins, it generally takes longer because the economy is so much more complex, but also because they are negotiating hard to minimize the obligations that they will be forced to undertake," trade and legal expert David Christy told the Voice of America on Tuesday. "And Russia was willing to put off its accession in order to ensure that the package of obligations it eventually accepts is as light as possible.”

But while Russia may have been vacillating, the United States on Tuesday gave the Kremlin an excuse to err on the side of caution. In a hard-line speech to a conservative think-tank, House Speaker John Boehner said the Barack Obama administration shouldn’t consider Russia’s decades-long bid to join the World Trade Organization until Moscow settles its border dispute with ex-Soviet state Georgia. “The administration should resolve this stalemate in a manner that respects the territorial integrity of Georgia,” Boehner said. “Then – and only then – will movement on the WTO question be worth considering.”